Purchase Solution

Life Cycle Income Explained with Human Capital Theory

Not what you're looking for?

Ask Custom Question

Using the economic theory of Human Capital, describe and explain the theoretical basis for income changes over the life cycle.

In other words, why it is that earnings increase at a decreasing rate, as one ages (why are returns diminishing - as is observed empirically)?

Purchase this Solution
Solution Summary

This solution is a 300-350 word explanation of how human capital relates to (and predicts) diminishing marginal productivity and income. The explanation provides examples and cites the work of Gary Becker (a Nobel prize winning Economist). In addition to providing a traditional human capital theory explanation, the solution's author uses the principles of human capital to offer an additional explanation of empirical (research-based) observations.

Solution Preview

It has been observed empirically that earnings often increase with age but at a decreasing rate - and both the increasing and decreasing rates are directly related to the level of skill, Becker (1992) notes. Within human capital theory there are several explicative factors. One is simply diminishing marginal productivity: years of experience increases with age - thus the absolute level of productivity may be higher, however the marginal gains in productivity reduces each time period (i.e. each year). Logically, it follows that the absolute increase in experience ...

Purchase this Solution
Free BrainMass Quizzes
Elementary Microeconomics

This quiz reviews the basic concept of supply and demand analysis.

Pricing Strategies

Discussion about various pricing techniques of profit-seeking firms.

Basics of Economics

Quiz will help you to review some basics of microeconomics and macroeconomics which are often not understood.

Economics, Basic Concepts, Demand-Supply-Equilibrium

The quiz tests the basic concepts of demand, supply, and equilibrium in a free market.

Economic Issues and Concepts

This quiz provides a review of the basic microeconomic concepts. Students can test their understanding of major economic issues.

View More Free Quizzes
Related BrainMass Solutions

  • Tax Questions

    The reason is that according to the life-cycle theory this unexpected increase in income will lead to the lifetime annuity value to be consumed and the rest saved.

  • Evaluating Performance and Product Life-Cycle Theory

    523416 Evaluating Performance and Product Life-Cycle Theory According to the internalization theory, firms that have intangible assets with a public good property tend to undertake FDI to take advantage of the assets on a large scale and, at the same

  • Several analysis with, and about, Human Capital theory

    121601 5 Human Capital theory questions & propositions to be explained Using the Human Capital theory: 1. Explain why firms in developing countries are more paternalistic. 2.

  • Erickson's Human Development Theory: Social Application

    Erikson's mapping out of the human life cycle is an important resource for social scientists.

  • Dramatic shift in the age distribution of the U.S. workforce

    As the American work force ages, and its lifetime earnings potential falls relative to current income, the life-cycle theory predicts that the rate of personal savings will rise and foreign capital inflows will fall.

  • Human Capital Theory's economic predictions on skill-level

    121598 Human Capital Theory's Economic Predictions on Skill-Level Using Human Capital theory (Becker, others), explain the relationship between skill and unemployment.

  • General Motors - Economic Indicators

    The business cycle also has a relation with individual unemployment. The business cycle is also known as economic cycle. The business cycle shows that in all the business activities the fluctuations occur in its long term growth.

  • Theories of comparative advantage

    Product life cycle - Product life-cycle theory predicts that all the parts and labor associated with a new product at first come from the area from which that product was first developed.

  • Gilligan's Theory

    Given this stage of the life cycle of a woman as opposed to a man's life cycle, according to Gilligan, a woman "Represents a personal reconstruction of morality following a period of questioning and doubt, but the reconstruction of moral understanding

View More Related Solutions